Kitopi 2
Industrial kitchen operators are spreading their reach in Dubai, helped by investors convinced by the business model they have carved up. Pictured here is one of the facilities operated by Kitopi. Image Credit: Gulf News Archive

Dubai: The UAE’s restaurant business is still reeling from the worst effects of the COVID-19. Some have already shut down, and others are trying to find ways to make some money from whatever orders come their way. But with no guarantee they can survive long-term.

It’s one sector that will have a lot of adjusting to do post-pandemic.

And then there are the UAE’s kitchens. Whether you know them as ‘industrial’, ‘cloud, ‘dark’ or ‘ghost’, these kitchens that make-and-pack meals by the thousands each day are showing a lot more resilience to the virus and its aftermath. It does seem these kitchens can take the heat… and they have done so through some swift adjustments in what they had to offer. And making those decisions while the pandemic was still raging.

What these kitchens have traditionally done is prepare meals for restaurants that do not operate their own in-house cooking areas; corporate clients who need meals to be delivered daily to their workforce; food “aggregator” portals who pass on the meal orders they receive; and even individual clients who sign up for all their dining needs on monthly contracts.

But now, these kitchen operators are doing a whole lot more.

Need to order grocery? Just dial the “kitchen”.

Need to order a meal kit and warm it up when you need it? Again, just dial.

“We are seeing three types of strategies kitchen operators are using to sustain their businesses,” said Sandeep Ganediwalla, Partner at RedSeer Consulting. “One, industrial kitchens expanded into newer categories, as seen by Kitopi launching grocery delivery.

“Two, industrial kitchens are increasingly taking the direct-to-consumer (D2C) route, especially the ones providing semi-cooked/cooked food to restaurants, such as the Intelligent Foods service by More Café. And three, corporate clients have emerged as more resilient than restaurants, and we expect kitchens will expand focus on this sector.”

Just go direct… and digital

Given the situation we’re in, this just happened sooner than anticipated

- Jihad Bou Nasr of Kitopi

If the pandemic has taught society and its consumers anything, it is about going big on digital. “What the pandemic has done is speed up the digital age by at least five years,” said Jihad Bou Nasr, Country Manager – UAE at Kitopi, which manages one of the biggest networks of kitchens in the country.

“In the Middle East and North Africa, 60 per cent of smartphone users have a food-related app on their devices. And 50 per cent of those who do, use it to order food online.

“So, brands and restaurants will see that cloud kitchens are the future. And given the situation we’re in, this just happened sooner than anticipated.

“There is a shift in consumer priorities as home delivery increases. And on the other end, location and footfall, two variables that can significantly drive operational costs, are becoming less important as delivery apps make kitchen location a non-issue.

“Restaurants that want to focus on customer building and recipe innovation will find partnering with a cloud kitchen such as Kitopi most ideal.”

F&B distress
After the pandemic struck, there have been a rash of restaurant closures. Many worry that the process has only started. Image Credit: Gulf News Archive

All to do with costs

For restaurants, here and anywhere, the present is about sheer survival. As long as concerns persist about a possible second wave for the COVID-19 spread, these businesses - especially the casual and fine dining establishments - will find the going tough.

By now, most in the F&B space have realized that they are not going to get much relief from landlords. Nor are they likely to see rents being cut in their ongoing leases.

Restaurants have already escalated layoffs to try and manage costs. A few would now see doing away with kitchens and outsourcing the meal preparation as another way to save on expenses.

Manohar Lahori, Chairman of Palmon Group and an investor in industrial kitchen facilities, says profitability in the food business is a lot about managing the real estate it’s set up on.

“The real estate is the tricky part - that’s why lots of restaurants are closing down,” said Lahori. “And why there is so much demand for dark kitchens - in fact, we are building six new ones in Dubai.

“The kitchen operators have a name and clientele, and they can serve them cheaper and at no huge expenses and relatively lower investment. All of the non-essential staff is sourced from third-parties - they only need the cooks and one supervisor.

“This can be quite a lean and efficient business model.”

Manohar Lahori of Palmon Group

The business of F&B is as much about the food as it is managing the real estate

UAE's F&B business needs a sugar rush
Closures of F&B business are likely to be a regular feature going forward.

"The impact will be higher at high-street locations, as restaurants can always focus on mall locations to right size their footprint," said Sandeep Ganediwalla of RedSeer. "On the demand side, customers are shifting to lower price points on their dining and ordering options.

"This is leading to pressure on casual and fine dining restaurant categories while quick-service restaurants are relatively more resilient. Independent restaurants are more severely impacted compared to restaurants within networks.

"For example, half of the chain restaurants are accepting online food delivery while only one-fourth of independent restaurants are doing so on a leading aggregator platform in Dubai."

Keep the expansion pot boiling

In early February, Kitopi, which operates dual headquarters in New York and Dubai, confirmed it had bagged $60 million in Series B funding, which will be used for expanding the global network of kitchens to 100 by year-end.

Meanwhile, a Dubai-based venture, Sweetheart kitchen, keeps adding to its reach and now has five units in Dubai. It’s business model is built on delivery-only, which immediately removes the need for investing and maintaining costly real estate that restaurants can be.

According to Nasr of Kitopi, the past few weeks have been good for business, as residents spent more time at home.

“We have seen a shift in people placing larger orders than before - this could be due to people eating dinner together since a majority are still working from home and therefore ordering for more people on average. Our basket size has increased by 20 per cent.”

And will that likely continue now that commercial activity is heading back to normal? “We’ve seen an uptick in restaurants wanting to join our platform,” said Nasr. “Many in the industry had already seen a positive trend towards an increase in demand for food delivery… even before COVID-19 restrictions were in place.

“Now, we are being approached by restaurants that would have typically not seen delivery as a priority, including high-end dine-in focused restaurants.”

Industrial Kitchen
Flaming hot... Industrial kitchens are pulling in massive investments, and Dubai remains a favoured spot.

It’s about survival

Biju Koshy, owner of Tharavad, is seeing the shift in business model brought on by COVID-19. He operates restaurants as well as an industrial kitchen focused on corporate clients.

“Given the many safety guidelines in place, it was better to remain closed because no one was turning up at the restaurants,” said Koshy. “At one of the locations, we focused only on delivery and catering orders.

“Our industrial kitchen too got hit because some of our corporate clients terminated the contract. So, from the average of 4,000 meals a day we delivered to clients, it dropped to 1,800. But that was still enough to make a margin out of. It would have been a disaster if my business was entirely dependent on restaurants.

“I always maintain that if restaurants are the showrooms in the F&B business, then kitchens are its warehouses. Rights, it’s the warehouses that are making money in F&B.”

Biju Koshy of Tharavad... "Industrial kitchens are the warehouses of the F&B business. These days, that's what is making money."
Client mix and healthy snacking helps
A client base dominated by corporates served Munchbox well during the COVID-19 months.

“The verticals we cater to are airlines , hospitality and the public sector,” said Radhika Sil – Head of Operations and R&D. “The consumer market for us in terms of individual orders has always been less than 20 per cent of our revenue.

“We adapted to the new economic climate, focussed only on urgent operational expenses and moved our procurement to local purchases. That allowed us flexibility due to the quick supply.

“With clients working remotely, munching on healthy snacks took on an upward curve. We capitalized on this with market feedback run via our analytics team and tailored optimized snacking based on current needs.”